Issue will decide future of payday lending

By STEVE BUEHRER

In an election season defined by closely contested races, from the Presidency to the state legislature to several local government offices, one of the most contentious matchups in Ohio has been between proponents and opponents of Issue 5, which will determine the future of the state's payday lending industry.

As part of a multi-week series of columns focusing on the statewide ballot issues, I will use this week's column to provide some background on payday lending in Ohio and lay out the arguments for and against Issue 5.

In 1995, the Ohio General Assembly approved House Bill 313, legislation designed to better regulate the state's check-cashing industry. Among other things, the bill cleared the way for check-cashing businesses to offer a new short-term loan product to help consumers cover emergency expenses between paychecks. Today, these are known as payday loans.

Because of their risky nature, the bill exempted payday loans from the state's usury and small loan laws, allowing check cashers to write them at a higher interest rate.

Specifically, payday lenders can charge a combination of interest and fees equal to $15 per $100 borrowed over the two-week life of the loan, with a maximum loan amount of $800. If calculated over a year, this amounts to an annual percentage rate of 391 percent.

The year HB 313 took effect Ohio had approximately 100 payday loan shops. In a little more than a decade, that number has grown to 1,600 storefronts. This proliferation of payday loan businesses coupled with concerns about the high interest rate that payday lenders can charge inspired the introduction of House Bill 545, legislation sponsored by Representative Chris Widener (R-Springfield), which would implement tougher regulations on Ohio's payday lending industry.

The bill, which passed the House and Senate and was signed by the Governor in June, would cap the annual interest rate on payday loans at 28 percent, restrict the amount a consumer can borrow at one time to no more than $500 or 25 percent of the consumer's base monthly pay, whichever is less, limit the number of loans a consumer can take out to four per calendar year and give borrowers at least 30 days to repay a loan. In addition, lenders would have the opportunity to provide short-term loans through the state's Small Loan Act. Ultimately, the bill's provision will significantly curtail or eliminate pay day lending in Ohio.

Proponents of HB 545 argue that these reforms are necessary to protect Ohio consumers from getting trapped in a cycle of debt. They say that while payday loans were originally meant to help financially-strapped Ohioans cover emergency costs until their paycheck arrives, more and more consumers are overextending themselves, taking out loan after loan just to pay back the previous one.

However, those in the payday lending industry counter that these regulations will force them to close down, costing Ohio jobs and severely limiting consumers' access to short-term loan assistance. In an attempt to block HB 545 from going into effect, a group called Ohioans for Financial Freedom launched a campaign to place a referendum on the ballot to put the question before Ohio voters. The result of this effort is Issue 5.

A "yes" vote for Issue 5 would make the provisions in HB 545 a permanent part of Ohio law. A "no" vote would allow payday lenders to continue offering short-term loans under the current guidelines.

No matter what choice you make on Issue 5 or any of the other statewide ballot proposals, I urge all voters in the 1st Senate District to show up at the polls on November 4th or send an absentee ballot to your local board of elections.

I encourage all residents of the 1st Senate District to contact me with any questions, thoughts or concerns, or if you need assistance working with a state government agency. You can write me, Senator Steve Buehrer, Ohio Senate, Statehouse, Columbus, Ohio, 43215, or contact me by phone at (614) 466-8150. In addition, I can be reached by email at SD01@mailr.sen.state.oh.us.